What are the best sales compensation models for your team?

There are so many different compensation models and ways to drive and incent sales and non-sales. At the end of the day, I believe that the foundation for any compensation plan must start at with goal setting. An organization could roll out the most lucrative compensation plan, but if the goals are not attainable, it doesn't matter. In the same vein, if goals are to low, then the org suffers. I don't necessarily believe that a compensation plan is good or bad. They can be more lucrative or less lucrative, but if goals are not appropriate, then the compensation plan doesn't serve its purpose to incent and drive behavior and initiatives.

Consider these sales compensation models: * **Salary-Only**: Fixed income promoting job security, but may not incentivize high performance. * **Commission-Only**: Percentage of revenue generated motivates performance, but has income instability. As a thought leader, analyze your team, sales cycle, and business goals. Hybrid models, combining salary and commission, can balance rewards and stability. Continually evaluate and adjust compensation models to match changing strategies and market conditions.

I have seen few examples of organizations that applied and mastered a salary-only compensation model for sales. Some years ago, a well-known tech name showcased this, and many sales compensation professionals thought their jobs were going away! However, this approach rarely works and, when it does, it's mostly because of unique organizational practices that replace the driving force of an incentive comp model. The truth is that there is always an incentive in some shape or form - and sales compensation is still here, alive and well!

It is difficult to give numbers but I have seen the three following cases. Basic + commission (for sales people) Basic + equity (for sales heads) Basic + equity + commission (for heads and senior sales people) a couple of notes on the above: There are cases of startups that owners are reluctant and hesitant to give part of their company easily without knowing their new "partner". Senior people from the other side joining a startup take a high risk and they need to believe in the product, the company and its people. It is highly motivational if they feel part of the company. Relying just on equity will not have a short term benefit as dividends might not be paid in the first couple of years

Salary-only is an insane/bad model for sales people. You'll rarely get good talent. Good salespeople want to maximize their earnings, which they cant do if theres no incentive. It goes against best practice to use a salary only approach. You can use a ore conservative approach (with more base relative to variable / target incentive), but don't go full salary only. Sellers need to have skin in the game, unless they're not actually selling (but then they're not sellers).

It is ineffective to have a commission only structure. This doesn't account for goals the organisation is moving towards. And over long term the sales team become focussed on only generating sales without profitability in balance. Only commission does not promote the right behaviour as well

Nobody really wants commission only or, at least, nobody prefers it. Unless you're in Solar, Real estate, or mfg reps (and select others), hard pass.

On the other hand, this is the model that would absolutely not work for Ops folks and not common at all to be seen. Most common for sales in early-stage businesses which are cash-tight but not much else.

Commission only is workable in an environment where a product is accepted, based on it quality and value. It also generate more wider market coverage and product promotion at the same time, as sales reps penetrate in areas where an organization may not access due to peculiar environmental condition. Gradually, as commission is paid to sales reps, an organization must also develop another model of increasing commission and maintain the quality of it product in other to retain organisational image and force the product to it potential consumers.

Probably the most successful model in my opinion is a basic salary with commission. It finds the middle ground between a salary only (promoting weak incentive for improved sales) and a commission only (high risk of fluctuating income and inability to budget) structure. This provides a stable foundation of remuneration with the attraction of further reward based on input. Most if not all sales people will always push for commission/incentive bonuses. To safeguard the business from an expensive exercise OTE should be implemented with strategic targets

A salary plus commission pay structure is the most common type of plan. It gives sales reps a fixed annual base salary plus commissions.

Most common model found for Sales teams and a variation of this being Salary + Bonus is also very common for Ops pros. This ensures that level of stability we like and also helps promote Org vision with that extra bonus structure. These are usually tied to a mix of company performance + team performance + individual performance and can become quite attractive in favourable scenarios. I think it boils down to what the individual prefers and prioritises in life.

Basic salary ( keeps us balanced) plus Commission ( pushes you to work harder to maintain the commission) whilst commission only is too risky, at times we lose focus because our minds focuses on what might happen if we don't perform same as last month instead of pushing for more sales knowing your basic will cushion any blows that affects commission. We can't escape the fact that sales is a numbers game, those who performs deserve to be rewarded for their efforts. Just my 2 cents thought on the matter

This is literally the only acceptable approach for actual modern sales roles that are FTEs and not 1099s. The term "commission" gets misused frequently, as there are other mechanics in a sales compensation plan that are (increasingly) frequently used. But this is the gist. 90%+ of the time this is the correct answer.

Nice thought, As the moment when employee draws future commision from the organisation his/her stickness for the company will increase and employees will be more productive than previous as they know that the commission would be repay !!!!

Draws seem to be fading away. It's a difficult concept to explain to younger reps and carries all of the risks of a commission-only model. It can be difficult to forecast your salary budget, and you always run the risk of the employee leaving with a negative balance, which is a logistical nightmare.

Draws are decreasingly popular. They are hard to administer & explain. The text explains some of the drawbacks pretty well. I'm not sure I've ever recommended a recoverable nor non-recoverable draw. The exception being new hires, who might have a non-recoverable draw.

There is time and place for draws. A generally accepted practice is to use them with new hires or those new in some sales roles, particularly in business development. I've seen some correlation between the use of draws in a salesperson's 1st year and success in the role in their second year and beyond, so it's hard to make a definitive case that draws should not be used at all. Under limited, strategic scenarios, they can assist with boosting sales success.

This is more of a crediting / metrics discussion than a compensation mechanics discussion. Occasionally salespeople will have a plan where most of the incentive is commission / goal-based-bonus at the individual level, with a portion carved out for team results, and that's fine in certain cases. Certain other roles (SEs, CSMs, etc.) it might make more sense to have on a teamed commission plan though.

Team commissions can be right for some roles, but likely shouldn't be the model for your primary sales reps. Positions that touch revenue, but aren't "direct" salespeople, can benefit from team commission. Examples: - Customer Success teams work with customers and may identify & close smaller upsell opportunities. - Collections associates may feel more motivated if they get a % of collected past-dues. - Support or operations employees may work to "save" clients at risk and may benefit by receiving a % of revenue the team saves. One other option is making Team Commission a piece sales plan, but not the entire sales plan. For product-launches that happen mid-year, a team goal & team commissions can be offered on top of current plan.

I am recommending 2 % for achieving 80% of given target 4% for the difference between 80% and 100% of given target And 6% for achievements over the 100%. To qualify for this. Commission you will have to achieve 4 Specific Objectives monthly. SMART goals will have to be set at the beginning of the year to make sure that sales team is very much aligned with the company’s goals. It might be product mix, new product, numbers of workshops , Seminars or number of surgeries. It can be any smart objective that sales team will be given at the beginning of the year. Meantime there should be a Plan & Review report prepared at the beginning of the year and checked monthly with every member in the team.

Commission and bonus are not the same. Commission (cost of sale) vs. Quota-based Bonus (cost of labor vs. territory opportunity) is one of the biggest differences in how sales incentives are delivered, and implies major organizational change when sales comp needs to evolve. Commissions (as distinct from other forms of incentives) typically assume additional compliance risks. This article is a pretty good illustration of why genAI won't have much to contribute on incentive strategy for a few years yet. You need a human expert to provide structure for the qualitative questions. Given an appropriate sample of data, computers can guide human decisions on quantitative issues like quota setting.

Consider going beyond the generally accepted concepts that everyone else is doing. Go for the edges! For example, a well communicated and masterfully enabled sales comp program goes a long way in motivating the sales team. However, a wonderful comp plan that no one understands or is administered poorly, has the opposite effect. Doing what others might be neglecting, like communicating clearly, establishing a strong feedback channel, and getting allies to your comp strategy have tremendous power and effectiveness.

TERRITORY VOLUME ? Benefits: Sales reps are compensated based on the sales volume of their assigned territory. This model encourages team collaboration, especially in regions with multiple reps. ? Drawbacks: High-performing reps might feel they're carrying the weight for underperformers in their territory.